And another one
First Republic Bank changed our lives. I'm sad to see it go.
In 2016, my wife and I had the opportunity to refinance more than $350,000 in graduate student loans through First Republic Bank. The day we locked in a 15-year note at an astonishingly low rate of 2.95% will be forever ingrained in our lives. The refi underscored a financial turning point for our family, coinciding with the arrival of our first daughter. It was a game-changing moment that would not only save us tens of thousands of dollars in interest, but also provided us greater financial stability when we needed it most. As a result, First Republic will have a special place in my heart, and I am truly sad to see it suffer the same fate as Silicon Valley and Signature Banks.
If you're shocked by our astronomical mountain of student loan debt, don’t be. Heather and I wrote a whole book about it. That was pretty much the price of pursuing law school and business school in New York City. Is it affordable? No. Did it make sense? Maybe, for one of us. However, we managed to harness the power of our graduate-level education to propel our careers, broaden our connections, and build a thriving business. Our hard work enabled us to fortify our creditworthiness and increase our income, paving the way for opportunities like First Republic’s remarkable refinancing product. It was a testament to our commitment to improving our financial situation and seizing every advantage available. The bank was a huge part of it all.
At the close of business last Friday, First Republic teetered on the brink of collapse. Rumors of an imminent government intervention and the bank's potential receivership started circling, casting a grim shadow over the bank’s ability to survive the weekend. On Monday morning, First Republic surpassed SVB as the second-largest bank failure in United States history. Mirroring SVB's fate, the bank faced the repercussions from significant uninsured depositors, a detrimental exodus of funds due to rising interest rates (as witnessed by a staggering $100 billion outflow in Q1), and a debilitating impact on bank profitability stemming from low-yielding treasuries and debt, which included our own refinanced loans.
As both a customer of the bank and a financial professional, the situation takes on a new dimension for me: I am now personally entangled in a bank collapse. I cannot help but think about the First Republic employees who played a pivotal role in assisting us with our loans, profoundly impacting my family's financial well-being. Their unwavering support and the transformative nature of their product and service shattered my preconceived notions about banks. I genuinely felt a sense of partnership and empowerment. Therefore, it is all the more distressing to witness the uncertainty that now engulfs the livelihoods of all who worked there.
Next, my thoughts inevitably turn to my family's accounts. We currently hold two loans and a checking account that falls within the protective limits of FDIC insurance. Fortunately, for the time being, I am relieved to not have concerns about accessing my checking account, and our savings are securely held elsewhere. Drawing insights from the receivership processes of SVB and Signature, I can reasonably anticipate that gaining access to our funds won’t be an extended ordeal. However, when it comes to our loans, I recognize that they won't simply vanish into thin air (my apologies to those I trolled on Twitter by joking otherwise). With First Republic's deposits and most of their assets being acquired by JPMorgan, I can only assume they will soon be servicing our loans.
But there’s a lot I don’t have answers to. For example, I have no idea when our next loan payments will be made or where those payments will be coming from. They are set to automatically withdraw from our First Republic checking account, but seeing how our account will soon be with JPMorgan, I’m in the dark on what happens in the interim. There’s a brief communication on First Republic’s website stating that everything remains the same for now. But I wonder what happens if our loan payments don’t go through, or if JPMorgan doesn’t take over our debt. Will the interest on our loans accrue and, if it does, will we be the ones paying for it? Then, there are other little details like reestablishing online bill pay and automatic payments linked to our First Republic checking account. It’s going to be a bit messy and inconvenient no matter how the transition goes. I know we will be fine in the end, but I don’t like not knowing what’s going to happen to a liability as large as our loans.
The aftermath of First Republic’s collapse raises numerous questions and concerns, both for individual customers and the broader banking system. It serves as a stark reminder of the interconnected nature of the banking system and the importance of proactive measures to safeguard financial stability for everyone. The resolution process, including the transfer of assets and management of customer accounts, needs to be carefully navigated to ensure minimal disruptions and uphold the integrity of the financial system as a whole. As both a customer and financial professional, I can only hope for clear communication, efficient resolution, and fair treatment during this challenging period. Either way, it’s sad to say goodbye to one of the good ones.
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When bank runs go viral - Back in March, I wrote a newsletter about the impact of social media on the collapse of SVB titled, Screaming "Bank run!" in a crowded Twitter. So I was excited to see that
, also covered the topic for his Substack, . In his newsletter, Anand interviews one of the authors of an academic paper titled, Social Media as a Bank Run Catalyst, which validates how social media has changed our way of life by having the power to shift narratives and move markets. I highly recommend checking out both his newsletter and the study.The Tweet
